BILL NUMBER: SB 1724	CHAPTERED  09/30/00

	CHAPTER   1084
	FILED WITH SECRETARY OF STATE   SEPTEMBER 30, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 30, 2000
	PASSED THE SENATE   AUGUST 30, 2000
	PASSED THE ASSEMBLY   AUGUST 25, 2000
	AMENDED IN ASSEMBLY   AUGUST 23, 2000
	AMENDED IN ASSEMBLY   AUGUST 11, 2000
	AMENDED IN ASSEMBLY   AUGUST 7, 2000
	AMENDED IN ASSEMBLY   JULY 3, 2000
	AMENDED IN ASSEMBLY   JUNE 8, 2000
	AMENDED IN SENATE   MAY 17, 2000
	AMENDED IN SENATE   MAY 4, 2000
	AMENDED IN SENATE   APRIL 25, 2000

INTRODUCED BY   Senator Dunn
   (Coauthors:  Assembly Members Honda and Machado)

                        FEBRUARY 23, 2000

   An act to amend Sections 17530.5, 22251, and 22253 of, and to add
Section 17530.6 to, the Business and Professions Code, to add Section
1799.1a to the Civil Code, and to add Section 18621.7 to the Revenue
and Taxation Code, relating to confidential records.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1724, Dunn.  Confidential records:  tax records.
   (1) Existing law prohibits a business entity that performs
bookkeeping services from disclosing the contents of any record, as
specified, and provides a civil remedy to recover the actual damages,
which in no case shall be less than $500, for the violation of this
provision as well as attendant court costs and reasonable attorneys'
fees.
   This bill would prohibit, subject to specified exceptions, the
unrelated use, as defined, and the disclosure, including internal
disclosures and those made to subsidiaries or affiliates, of
information obtained from a tax return or submitted by a consumer,
including that obtained through an electronic medium, in connection
with a financial or other business-related transaction.  This bill
would additionally require the disposal of this information in a
designated manner for confidentiality purposes and would provide that
this provision is inoperative if AB 2246 of the 1999-2000 Regular
Session is enacted and becomes operative on or before January 1,
2001.  This bill would make a violation of its provisions subject to
the civil remedy described in existing law and would specify that
each violation constitutes a separate cause of action for which
damages are recoverable under that remedy.
   (2) Existing law provides for the regulation of tax preparers and
makes a violation of specified provisions a crime, including one that
prohibits any individual or business from disclosing information
obtained in the business of preparing or assisting in the preparation
of a federal or state income tax return, as defined, unless, among
other specified circumstances, the taxpayer has consented to the
disclosure.  This bill would specify that each violation of the
provisions regulating the practice of tax preparers constitutes a
separate offense.
   This bill would expand the definition of the business of preparing
or assisting in preparing tax returns to include a person who files
a return by electronic transmittal directly to the Franchise Tax
Board or the Internal Revenue Service and would additionally prohibit
those engaged in the business from disclosing either internally or
to subsidiaries or affiliates, as defined, information obtained in
the course of that business.  This bill would specify that the
information prohibited from disclosure by these provisions includes
that obtained through an electronic medium and would require that a
consent for disclosure by the taxpayer specify to whom the
information will be disclosed and how the information will be used.
   This bill would make it a crime to dispose of information obtained
in the business of preparing or assisting to prepare returns in a
manner in which the identity of the taxpayer may be determined, as
specified, and would provide that this provision is inoperative if AB
2246 of the 1999-2000 Regular Session is enacted and becomes
operative on or before January 1, 2001.
   (3) Under existing law, any return and other specified, related
documents filed with the Franchise Tax Board using electronic
technology are required to be in a form prescribed by the board.
   This bill would prohibit the board from approving for electronic
filing any proprietary filing software or electronic tax preparation
forms that require a taxpayer to consent to the disclosure of
specified information as a condition of access to that software or to
those forms.
   (4) Because this bill would enlarge the type of prohibited
disclosures and would make it a crime to fail to dispose of certain
information in a specified manner, the bill would both create a new
crime and expand the definition of an existing crime, thereby
imposing a state-mandated local program.
  (5) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state.  Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 17530.5 of the Business and Professions Code is
amended to read:
   17530.5.  (a) It is a misdemeanor for any person, including an
individual, firm, corporation, association, partnership, or joint
venture, or any employee or agent thereof, to disclose any
information obtained in the business of preparing federal or state
income tax returns or assisting taxpayers in preparing those returns,
including any instance in which this information is obtained through
an electronic medium, unless the disclosure is within any of the
following:
   (1) Consented to in writing by the taxpayer in a separate document
that states to whom the disclosure will be made and how the
information will be used.  If the taxpayer agrees, this separate
consent document may be in the form of an electronic record, executed
by an electronic signature as provided by Title 2.5 (commencing with
Section 1633.1) of Part 2 of Division 3 of the Civil Code.
   (2) Expressly authorized by state or federal law.
   (3) Necessary to the preparation of the return.
   (4) Pursuant to court order.
   (b) For the purposes of this section, a person is engaged in the
business of preparing federal or state income tax returns or
assisting taxpayers in preparing those returns if the person does any
of the following:
   (1) Advertises, or gives publicity to the effect that the person
prepares or assists others in the preparation of state or federal
income tax returns.
   (2) Prepares or assists others in the preparation of state or
federal income tax returns for compensation.
   (3) Files a state or federal income tax return by electronic
transmittal of return data directly to the Franchise Tax Board or to
the Internal Revenue Service.
   (c) A disclosure prohibited by this section includes a disclosure
made internally within the entity preparing or assisting in preparing
the return for any purpose other than tax preparation or made by
that entity to any of its subsidiaries or affiliates.
   (d) For purposes of this section, "affiliate" means any entity
that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, another
entity.
   (e) Contacting a taxpayer to obtain his or her written consent to
disclosure does not constitute a violation of this section.
  SEC. 2.  Section 17530.6 is added to the Business and Professions
Code, to read:
   17530.6.  (a) Any person, including an individual, firm,
corporation, association, partnership, or joint venture, or any
employee or agent thereof, shall dispose of any of the information
described in Section 17530.5 in a manner including, but not limited
to, burning, shredding, electronic deleting, or other appropriate
means, so that the identity of the taxpayer may not be determined
from the disposed information alone or in combination with other
publicly available information.  A violation of this section
constitutes a misdemeanor.
   (b) This section shall not become operative if Assembly Bill 2246
of the 1999-2000 Regular Session is enacted and becomes effective on
or before January 1, 2001.
  SEC. 3.  Section 22251 of the Business and Professions Code is
amended to read:
   22251.  For the purposes of this chapter, the following words have
the following meanings:
   (a) (1) Except as otherwise provided in paragraph (2), "tax
preparer" includes:
   (A) A person who, for a fee or for other consideration, assists
with or prepares tax returns for another person or who assumes final
responsibility for completed work on a return on which preliminary
work has been done by another person, or who holds himself or herself
out as offering those services.  A person engaged in that activity
shall be deemed to be a separate person for the purposes of this
chapter, irrespective of affiliation with, or employment by, another
tax preparer.
   (B) A corporation, partnership, association, or other entity that
has associated with it persons not exempted under Section 22258,
which persons shall have as part of their responsibilities the
preparation of data and ultimate signatory authority on tax returns
or that holds itself out as offering those services or having that
authority.
   (2) Notwithstanding paragraph (1), "tax preparer" does not include
an employee who, as part of the regular clerical duties of his or
her employment, prepares his or her employer's income, sales, or
payroll tax returns.
   (b) "Tax return" means a return, declaration, statement, refund
claim, or other document required to be made or filed in connection
with state or federal income taxes or state bank and corporation
franchise taxes.
   (c) An "approved curriculum provider," for purposes of basic
instruction as described in subdivision (a) of Section 22255, and
continuing education as described in subdivision (b) of Section
22255, is one who has been approved by the council as defined in
subdivision (d), or by the Bureau for Private Postsecondary and
Vocational Education under Chapter 7 (commencing with Section 94700)
of Part 59 of Division 10 of the Education Code.  A curriculum
provider who is approved by the tax education council is exempt from
Chapter 7 (commencing with Section 94700) of Part 59 of Division 10
of the Education Code.
   (d) "Council" means the California Tax Education Council which is
a single organization made up of not more than one representative
from each professional society, association, or other entity
operating as a California nonprofit corporation which chooses to
participate in the council and which represents tax preparers,
enrolled agents, attorneys, or certified public accountants with a
membership of at least 200 for the last three years, and not more
than one representative from each for-profit tax preparation
corporation which chooses to participate in the council and which has
at least 200 employees and has been operating in California for the
last three years.
  SEC. 4.  Section 22253 of the Business and Professions Code is
amended to read:
   22253.  (a) It is a violation of this chapter for a tax preparer
to do any of the following:
   (1) Make, or authorize the making of, any statement or
representation, oral or written or recorded by any means, which is
intended to induce persons to use the tax preparation service of the
tax preparer, which statement or representation is fraudulent,
untrue, or misleading.
   (2) Obtain the signature of a customer to a tax return or
authorizing document which contains blank spaces to be filled in
after it has been signed.
   (3) Fail or refuse to give a customer, for his or her own records,
a copy of any document requiring the customer's signature, within a
reasonable time after the customer signs the document.
   (4) Fail to maintain a copy of any tax return prepared for a
customer for four years from the date of completion or the due date
of the return, whichever is later.
   (5) Engage in advertising practices which are fraudulent, untrue,
or misleading, including, but not limited to, assertions that the
bond required by Section 22250 in any way implies licensure or
endorsement of a tax preparer by the State of California.
   (6) Violate Section 17530.5 or 17530.6.
   (7) Violate Section 7216 of Title 26 of the United States Code.
   (8) Fail to sign a customer's tax return when payment for services
rendered has been made.
   (9) Fail to return, upon the demand by or on behalf of a customer,
records or other data provided to the tax preparer by the customer.

   (10) Knowingly give false or misleading information to the
consumer pursuant to Section 22252, or give false or misleading
information to the surety company pursuant to subdivision (a) of
Section 22250, or give false or misleading information to the
California Tax Education Council pursuant to Section 22255.
   (b) Each violation of this section constitutes a separate offense.

  SEC. 5.  Section 1799.1a is added to the Civil Code, to read:
   1799.1a.  (a) No person, including an individual, firm,
corporation, association, partnership, or joint venture, or any
employee or agent thereof, shall disclose information obtained from a
federal or state income tax return or any information obtained from
a tax schedule submitted with the return by a consumer in connection
with a financial or other business-related transaction unless the
disclosure is within any of the following:
   (1) Consented to in writing by the consumer in a separate document
that states to whom the disclosure will be made and how the
information will be used.  If the consumer agrees, this separate
consent document may be in the form of an electronic record, executed
by an electronic signature as provided by Title 2.5 (commencing with
Section 1633.1) of Part 2 of Division 3 of the Civil Code.
   (2) Authorized or required by state or federal law.
   (3) Necessary to complete or service the financial or
business-related transaction or to effect, administer, or enforce a
financial or business-related transaction requested by the consumer.

   (4) Pursuant to court order.
   (5) Required to complete any of the transactions described in
subparagraphs (A) to (D), inclusive, by a person, including an
individual, firm, corporation, association, partnership or joint
venture, if the disclosure is made solely for that purpose.  The
provisions of this section apply to any person, including an
individual, firm, corporation, association, partnership, or joint
venture, and any employee or agent thereof, receiving information as
a result of a disclosure authorized by this paragraph.
   (A) A proposed or actual sale, merger, transfer, or exchange of
all or a portion of a business or operating unit.
   (B) A proposed or actual securitization or secondary market sale,
including the sale of servicing rights.
   (C) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, rating agencies, and other
persons assessing compliance with industry standards.
   (D) To protect against or to prevent actual or potential fraud and
unauthorized transactions and claims and for institutional risk
control activities.
   (b) No unrelated use shall be made of a federal or state tax
return or any information obtained therefrom or any information
submitted with the return by a consumer in connection with a
financial or other business-related transaction.  "Unrelated use"
means any use that is not necessary to effect, administer, or enforce
the financial or other business-related transaction with the
consumer or that is beyond the scope of the stated purpose to which
the consumer consented for the use of the return or any other
information he or she submitted.
   (c) (1) For purposes of this section, the following definitions
shall apply:
   (A) "Affiliate" means any entity that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, another entity.
   (B) "Consumer" means an individual who requests or obtains
financial or other business-related services.
   (C) "Tax return" means a return, declaration, statement, refund
claim, or other document required to be made or to be filed in
connection with state or federal income taxes or state bank and
corporation franchise taxes.
   (2) A disclosure prohibited by this section includes a disclosure
made internally within the entity or by that entity to any of its
subsidiaries or affiliates.
   (3) The information described in subdivision (a) includes that
information obtained through an electronic medium.
   (d) No person, including an individual, firm, corporation,
association, partnership, or joint venture, or any employee or agent
thereof, shall dispose of any of the information described in
subdivision (a) in a manner in which the identity of the consumer may
be determined from the disposed information alone or in combination
with other publicly available information.  This subdivision shall
not become operative if Assembly Bill 2246 of the 1999-2000 Regular
Session is enacted and becomes effective on or before January 1,
2001.
   (e) The civil remedies in Chapter 3 (commencing with Section
1799.2) shall be applicable to a violation of this section.  Each
violation of this section shall constitute a separate cause of action
for which damages are recoverable.
   (f) The treatment of tax returns by tax preparers, as defined in
Section 22251 of the Business and Professions Code, shall be governed
by Section 17530.5 of the Business and Professions Code.
  SEC. 6.  Section 18621.7 is added to the Revenue and Taxation Code,
to read:
   18621.7.  The Franchise Tax Board shall not approve for electronic
filing any proprietary filing software or electronic tax preparation
forms that require a taxpayer to consent to the disclosure of any
information for which a consent to disclose is required by Section
17530.5 of the Business and Professions Code as a condition of access
to that software or to those electronic tax preparation forms.
  SEC. 7.  No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
